Posted by: crudbasher | August 24, 2010

If You Give it Away for Free, Is it Worth Anything?

I have been following with great interest the Open Courseware initiatives. Various schools, most famously MIT have been putting lectures online for anyone to access for free. I then read this fascinating article by Daniel Luzer about how some colleges such as George Washington have greatly increased their tuition to pay for big ticket campuses and to become more “exclusive”.  Something clicked which I want to lay out here.

Traditional University Business Model

For quite a while I have been talking about the business model of universities and how I don’t think it can continue for much longer.  To sell something you have to have someone willing to buy it.  They will only buy it if it has value.  You only get value from scarcity. You have something to sell that is in limited quantities.

So what is it in education that is limited?  It’s not knowledge or information.  That used to be the case but now with the Internet, a determined person can teach themselves a great many things for free. I know because I have done so.  A few weeks ago I needed to replace our leaky kitchen faucet.  I went online and watched some videos showing how to do it. Therefore no plumber was required.  Obviously this is a very simple example.

So how do universities justify charging higher and higher fees for giving you information and knowledge you could get from other sources?  They don’t.

This was my big realization: many universities are not charging for the learning you get. By putting content and lectures online they are saying that part of the experience has zero value.  In this I agree with them.  As the article I linked to shows, many universities are selling a stamp of approval and prestige. If you are in certain elite circles in this country, it doesn’t matter who you are, it just matters where you went to school.  Doors will open if you went to Harvard or Yale that won’t if you went to Valencia Community College for example. (not to pick on them, they are a fine school).

Now there are other types of schools that are teaching skills.  At my school Full Sail University, we have equipment that you can’t easily get your hands on and we have industry people teaching how to use it.  That certainly has value and we don’t give it away!  Even Seth Godin says Full Sail is not a traditional university. (note: as always, I am not speaking for my employer)

Assessment and Credentialing

As I blogged about last week, the problem here is one of assessment.  Employers want some assurance that a new employee has certain standards.  Right now they are run by people who came up through the traditional university structure.  What happens though when these companies start being run by the Facebook generation?  To that generation, reputation is everything.  We can be very selective about who we associate with.  Technology is making it possible to size up a new employee much more accurately than just where you went to school.  As I said before, that is a very blunt instrument.

That job of credentialing that universities currently do is a very expensive and not very accurate way of sorting the workforce. Once someone comes up with a better way, then the much of the university system will collapse.  As it says in the article, many universities are operating on tuition and don’t have much reserve funds.  All it takes is one year of high school grads to decide to stay home and POOF!

I hope things will transition to a better business model before that much chaos happens, but I am not hopeful.  Universities will have to decide what they are selling and will their students pay for it.

  • Great great article about the illusion of prestige…

    tags: education highered bubble

    • Today George Washington, like many “up-and-coming” second-tier schools—American University, New York University—is ruinously expensive.
    • After decades of offering a low-cost education, GW took a sharp turn upmarket in the late 1980s under the presidency of Stephen Joel Trachtenberg.
    • When Trachtenberg took office, undergraduate tuition was $14,000—below average for a private, four-year college. By the time he left in 2007, it had mushroomed to $39,000 a year
    • making GW the most expensive school in the United States.
    • What Trachtenberg understood was that perception is reality in higher education—and perception can be bought.
    • “It serves as a trophy, a symbol,” he says. “It’s a sort of token of who they think they are.”
    • Welcome to today’s increasingly elite higher education system, where lavish campuses, high tuition, and huge undergraduate debt loads have become the norm.
    • For an institution like GW, erecting fancy new buildings also serves a more narrowly strategic purpose: it instantly signals prestige to prospective students and buys the school traction in the U.S. News & World Report college rankings.Lavish buildings don’t actually improve education, of course, but elite schools have them; ergo, lavish buildings are an essential ingredient for academic high status.
    • Many GW students come from families that can’t afford high tuition.
    • The average borrower leaves Foggy Bottom with $31,299 worth of debt, among the highest levels in the country.
    • If GW puts many of its students in a financially precarious situation, it’s worth noting that the school itself shares much the same plight.
    • Like a recent graduate with a crushing loan, GW operates on the fiscal equivalent of paycheck to paycheck, covering nearly 80 percent of annual expenses from tuition revenue—much higher than the 40 percent average among private national research universities.
    • American University
    • The average borrower leaves American about $41,000 in debt. Some 84 percent of American’s operating budget is funded by undergraduate tuition.
    • there’s very little evidence that the quality of GW’s academic program has risen in step with its tuition rates.
    • The school’s graduation rate is 81 percent—not bad, but not especially good, either, putting it in the same league as much cheaper schools like Virginia Tech and the University of Maryland.
    • When GW was a cheap school, introductory economics classes had 160 students
    • Now, despite the new higher tuition costs, they run to 270.
    • it seems just as likely that GW could turn out to be one more overleveraged artifact of our gilded age. New, more streamlined institutional models could steal into Washington, capitalize on the same geographic advantages, and undercut GW on cost. Or a school with a more established brand name could establish a satellite campus, partner with a major policy organization, and beat GW in prestige.
    • But above all, GW seems vulnerable to a potential change in the way we think about higher education. What if we actually started measuring how much students learn at their colleges and universities?

Posted from Diigo. The rest of my favorite links are here.


  1. It does seem to be all about the name, the connotation of being associated with a university, the prestige. Wonder how long that will do it for them?

  2. […] If You Give it Away for Free, is it Worth Anything? […]

  3. […] what a concept! I have said for a while now that for many universities, their only main value is their credentialing function and now here is […]

  4. […] this is really interesting. In a post I did last year called If You Give It Away For Free, Is It Worth Anything I speculated about what part of a University actually has value. Many industries are having to […]

  5. […] You see, businesses use a college degree as a signaling mechanism. By finishing college, you get that credential which indicates to the business you are worthy of looking at. Because of this, most companies have reduced HR departments. Essentially they have outsourced some of the job of finding employees to the university system. I think this relationship is what is keeping universities in demand. I wrote about this last year. If You Give it Away for Free, Is it Worth Anything? […]

  6. […] See also: If You Give it Away for Free, Is it Worth Anything? […]

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